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July 9, 2010

What’s on the Minds of the Top Wealth Managers?

Assets are growing but there are still lots of things that keep the Top Wealth Managers awake at night.

Wealth Manager is proud to present the 10th annual Top Wealth Managers rankings in a special new area of WealthManagerWeb.com. This will be where all of the Top Wealth Managers research results and rankings will be from now on, so you can find the latest as well as the prior years' annual data, analyses and reports and now, quarterly research as well. We will be adding to the area during the year, and will keep you posted as we do that.

The firms that participate in the annual Top Wealth Managers survey are the lion's share of the largest, most established registered investment advisors (RIAs), in America--those firms our survey partner, Fusion Advisor Network President Philip Palaveev, says are, "the ones every RIA wants to be when they grow up." With all that is changing in the financial services industry, this is coverage you won't want to miss. For instance, which types of firms are growing fastest, what are clients' primary investment goals, how are firms conducting their due diligence? Which services are most important to clients?

For the 10th anniversary for Wealth Manager, we deliver a new way of looking at our Top Wealth Managers. In addition to the classic rankings for this annual survey, by average assets under management (AUM) per client, there's an interactive database that will enable you to sort firms on many different attributes, including total AUM, average AUM per client, city or state, year the firm started, minimum annual fee or alphabetically. Plus there are active links to participant firms' Web sites.

For anyone who missed this year's survey, take heart: Wealth Manager has started quarterly Top Wealth Managers Pulse mini-surveys with rankings, and the next of those will be available for you to participate in toward the end of July, for data from the second quarter of 2010. It's a great way for more firms to participate.

Wealth management has changed over the past decade for many of the clients of the registered investment advisors taking part in the 2010 Top Wealth Managers survey. Some of the survey rules have changed as well. For instance, we changed in 2010 to include only firms that are SEC registered rather than state-registered. In part that goes along with our requirement of $50 million in assets under management for inclusion in the rankings, but this year that rule eliminated a number of firms that wanted to take part. With the re-regulation of financial services soon to become a reality, we will revisit some of our rules as we try to balance participation of the true wealth management firms with potential new regulatory rules.

All in all, 348 firms qualified to be part of the Top Wealth Managers rankings, which are based on firms' average AUM per client. More than 70 additional firms did not complete the survey; for those that did, we are delighted to have you participate.

There were 52 questions on this year's survey, and we appreciate the time participants took to provide the candid answers to those questions and the thoughtfulness of the answers to the write-in questions. This assures that we have the most current, comprehensive information about RIA firms. We especially thank nearly all of you for providing information which we aggregate to use to gauge trends in the industry but would not publish firm by firm--such as revenues. This helps us to help you see where you stand within the RIA universe. I want to mention that when our survey partner, Fusion Advisor Network President Philip Palaveev--who was a principal at Moss Adams--analyzes the survey data for his report, he does not see firm or personnel names that would identify the firms--just the data and answers to the questions.

We also will rank firms by total AUM this year, as we have for the past two Quarterly Top Wealth Manager Pulse surveys.

Critical risks to clients

When we asked, "What are the three most critical risks to your clients now?" there was one undercurrent running through many of the answers: uncertainty. Uncertainty about taxes, inflation or deflation and low interest rates has made it challenging to plan or to allocate assets in the classic ways. Some investment advisors are wondering if "it really is different this time." And of course, estate planning was totally thrown up in the air by the failure of legislators to enact laws governing the estate tax by the end of 2009, so it was eliminated in 2010 but at the same time, changing the basis calculation was changed and, of course, the estate tax comes roaring back at the stroke of the new year for 2011.

Clients are also concerned with job loss, continued volatility in the markets and economy, and the fundamental issues of outliving retirement savings, helping the next generations deal with wealth in responsible ways. These issues, the ones that "keep clients awake at night" keep advisors awake at night too.

Critical risks for firms

In addition to what worries clients, advisors are concerned with continued uncertainty in the markets and economy, recruiting and retaining talent, managing growth, succession planning and technology risks. The technology risks were not just about keeping up with technology or integrating the disparate systems across vendors, but also disaster recovery and identity theft.

Coping with additional regulation is also frequently mentioned as is uncertainty of how re-regulation will affect firms.

Family offices

Family offices comprise 15% of the Top Wealth Managers for 2010. Most of those, 93%, are multifamily offices. There has been a trend for single family offices to join forces with other either multifamily or single family offices in the past year or so, as scale can be helpful in managing costs of running family offices, and there are the other rewards that include the ability to retain and provide career paths for wealth advisors and investment managers in a larger organization--as well as the potential for shared wisdom and networking among the families served by these entities.

Primary investment goals

"Wealth preservation" is the "Primary investment goal of the majority of your clients," according to 65% of Top Wealth Managers, followed by "capital appreciation" as the primary goal for 28%. Four percent of participating RIAs say "income" was their clients' primary investment goal.

Due diligence

Due diligence is another item firms are paying close attention to. After the Madoff and other scandals in the past two years, as well as complex investment products that snagged many investors (collateralized debt obligations or auction rate securities come to mind), many Top Wealth Managers take no prisoners when it comes to due diligence, with 63% conducting due diligence in-house, while 30% have a belt-and-suspenders approach, using a combination of in-house, third party and platform providers' due diligence services.

Important services to clients

We asked participants to rank the "services that are most important to your clients." "Investment management" was the top-ranked service, with 72% of Top Wealth Managers ranking that as the number-one service for clients. Tax planning was clearly important as well, with 54% ranking tax planning as number two or number three.

Estate planning was ranked as the second- or third-most important service by 46% of participants, and risk management was ranked number two or three by 29% of survey participants.

Comments? Please send them to kmcbride@wealthmanagerweb.com. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.

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